Tim Hortons to boost outlets, test drive upscale U.S. format

Tim Hortons plans 900 more stores, with one-third in the U.S. and the rest in Canada.

Albert Venczel enjoys a cup at Tim Hortons at the corner of College and Yonge Sts. Feb. 8, 2010.

By:Emily MathieuBusiness Reporter, Published on Sat Mar 06 2010

Feel like some ice cream with your coffee? Or how about nibbling on a cruller on sleek seats next to a flickering stone fireplace?

Tim Hortons is preparing to test drive a new upscale restaurant format in the United States and broaden its North American product line as part of a three-year expansion plan that will include the opening of about 900 new stores.

Canada will have 600 new stores, with the majority in Quebec, Western Canada and major urban locations, bringing the national total to about 3,600.

Of the chain's existing stores, 60 will be converted to include the Cold Stone Creamery concept in partnership with an American ice cream chain, with plans to co-brand stores in the US.

In Canada, 13 locations sell the product, two in Toronto.

In the U.S., 300 new stores will open, primarily in markets in New York, Ohio and Michigan. Of the existing 563 locations, 10 will be revamped as part of a pilot project for upscale locations, featuring "enhanced finishes, fixtures and seating areas." The fireplace was part of a design shown to investors during a presentation Friday.

The restaurant operator says it plans to spend $180 million to $200 million this year to support its growth initiatives and expects the expansion will be completed by 2013.

"Our strategies will continue to transform Tim Hortons, not only adding significant scale but also introducing important additional growth layers to our business platform to extend our position as a leader in the North American restaurant industry," Don Schroeder, president and CEO, said in a statement.

"We are a growth company with significant long-term opportunities in Canada, and we are also excited by the prospects of continued profitable growth in the U.S., and potentially internationally in the longer term."

Tim Hortons shares closed at $32.73, up 81 cents or 2.54 per cent.

The company also plans to expand its menu, including more soup and sandwich offerings.

David Soberman, a professor of marketing at the Rotman School of Management at the Uni0versity of Toronto, said Tim Hortons is the dominant coffee seller in Canada, but said expansion on too many fronts can carry an element of risk.

"It you do three things very well, you know that somebody can equal you but probably can't do better. But if you try to do 20 things, eventually there are one or two things the competition can do better than you," said Soberman. "That potentially has the risk that it can affect the overall brand."

During the presentation Bill Moir, chief brand and marketing officer, said extensive research went into the expansion plans to make sure the company wouldn't alienate its core customers.

"I think there are ways to stretch the brand, you have to be careful about it but certainly fit is always one of the first questions we ask."

Some associations are a no brainer.

David Clanachan, chief operations officer, United States and International, described concepts for the new sign in the U.S., including the use of the words "café" and "bakery."

"In Canada Tim Hortons gets away with just putting Tim Hortons on their building," but in the U.S. consumers need to be drawn in, he said.

The company is aiming for same-store sales growth of 3 per cent to 5 per cent in Canada and 2 per cent to 4 per cent in the United States.

It's also aiming to earn between $1.95 and $2.05 per share.

With files from The Canadian Press

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